To Group or Not to Group Under the Guidelines (1/7/16)

United States v. Doxie, 2016 U.S. App. LEXIS 5 (11th Cir. 2016), here, that deals with the Sentencing Guidelines' concept of grouping.  First, the facts relevant to this discussion.

The defendant defrauded his employer by submitting fictitious invoices for which the employer periodically mailed checks to company of $642,196.  In addition, the defendant charged the employer for false work-related expenses aggregating $287,466.33.  He did not report the income on his tax returns for 2008-2011, underpaying taxes in those years by $299,750.  For this misconduct, he "pled guilty to 21 counts of mail fraud for the false invoices (Counts 1 to 21), 41 counts of wire fraud for the false credit card charges (Counts 22 to 62), and 4 counts of filing a false tax return for the four tax years (Counts 63 to 66)."  Each of the mail and wire fraud counts carries a 20 year maximum sentence.  So, the maximum incarceration time for the fraud charges by stacking the counts would be 3,720 months.  18 USC § 1341, here, and § 1343, here.  The tax charges are tax perjury with a 3 year maximum incarceration (§ 7206(1), here), so the 4 counts would add another 144 months maximum.  The aggregate maximum sentence would thus be 3,864 months, well over 322 years.

Readers know that, where the counts of conviction are only for tax crimes, the major factor in the sentencing is the tax loss.  See S.G.  § 2T1.1(a)(1), here, and the tax loss table, here.  The nuance is that multiple counts of conviction for tax and tax related crimes (e.g., the defraud / Klein conspiracy under 18 USC 371, here), the tax loss is aggregated (including tax loss for relevant conduct outside the counts of conviction) and the calculation made accordingly.  Accordingly, for the initial Base Offense Level calculations in § 2T1.1(a)(1), it makes no difference whether there are multiple counts of conviction.  The counts of conviction are principally relevant in determining the maximum period that can be imposed if the guidelines calculation exceeds that maximum.

Chapter Three of the Guidelines contains adjustments that must be considered.  Part D deals with multiple counts of conviction.  As noted above, multiple counts are not considered in a pure tax case in calculating the Base Offense Level.  Where the counts of conviction are solely tax and tax-related, multiple counts of conviction do not require any adjustment to the calculations.  However, where there are multiple counts of conviction included unrelated offenses, there may be an adjustment.

To follow the Guidelines, the Court "groups" the counts of conviction into "distinct Groups of Closely Related Counts," determines the Guidelines calculations for each group and then makes adjustment if there is more than one Group.  In the example I just posited for only tax and tax-related crimes, there is only one Group, hence there is no further adjustment under Part D.  But, in cases illustrated by Doxie, there may be more than one Group -- (i) the nontax financial crime with sentencing calculations under S.G. § 2B1.1(a)(1) and § 2B1.1(b)(1)(I), here, and (ii) the tax crime with calculations under § 2T1.1(a)(1).  In such cases, if the Guidelines for only one of the Groups were considered, there would be no consideration of the convictions in the other Group.  The purposes of Part D are two-fold:  First, by grouping related counts of conviction, prevent the prosecutor from affecting the sentence by inflating the number of charges for a common pattern of conduct.  Second, to provide some level for incremental punishment by increases in the offense level that then increases the guidelines ranges under the sentencing table.

Now, let's turn to Doxie.  The key question in Doxie was whether there really were two groups to permit some level of incremental consideration under the grouping rules:  I cut and paste the key parts of the Court's resolution of the issue:.

A. Grouping Counts Under U.S.S.G. § 3D1.2 

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In Part D of Chapter 3, the Sentencing Guidelines provide rules for grouping multiple counts together. According to the Introductory Commentary, the underlying goals of Part D are "to provide incremental punishment for significant additional criminal conduct," and "to limit the significance of the formal charging decision and to prevent multiple punishment for substantially identical offense conduct." See U.S.S.G. ch.3, pt. D, introductory cmt. To that end, when a defendant is convicted of multiple counts, the Sentencing Guidelines instruct the district court to group "closely related" counts of conviction according to the rules in § 3D1.2 before determining each group's offense level and the combined offense level for all the counts. See U.S.S.G. § 3D1.1; see also United States v. Marseille, 377 F.3d 1249, 1254 (11th Cir. 2004). 

Under § 3D1.2 "counts are to be grouped together for purposes of calculating the appropriate guideline range whenever they involve 'substantially the same harm.'" United States v. Register, 678 F.3d 1262, 1266 (11th Cir. 2012) (quoting § 3D1.2). Section 3D1.2 further provides circumstances in which counts involve substantially the same harm, as follows: 

(a) When counts involve the same victim and the same act or transaction.
(b) When counts involve the same victim and two or more acts or transactions connected by a common criminal objective or constituting part of a common scheme or plan.
(c) When one of the counts embodies conduct that is treated as a specific offense characteristic in, or other adjustment to, the guideline applicable to another of the counts.
(d) When the offense level is determined largely on the basis of the total amount of harm or loss, the quantity of a substance involved, or some other measure of aggregate harm, or if the offense behavior is ongoing or continuous in nature and the offense guideline is written to cover such behavior. 

U.S.S.G. § 3D1.2(a)-(d). "Counts involving different victims (or societal harms in the case of 'victimless crimes') are grouped together only as provided in subsection (c) or (d)." U.S.S.G. § 3D1.2 cmt. background. Because the "decision as to whether to group [multiple counts] together may not always be clear cut," the Background Commentary to § 3D1.2 instructs courts to "look to the underlying policy of this Part as stated in the Introductory Commentary" when "interpreting this Part and resolving ambiguities." Id. 

The issue in Doxie was whether the tax crimes, a financial crime, should be grouped with the mail and wire fraud crimes, also financial crimes.  The fight was over whether the tax crime involved "substantially the same harm" as the nontax financial crime so that it should be grouped with the financial crime. Now normally, since different victims were involved, they would not be treated as substantially the same under §3D1.2(a) which looks to the commonality of the victim.  But, under SG §3D1.2(c) and (d) provide:

(c)       When one of the counts embodies conduct that is treated as a specific offense characteristic in, or other adjustment to, the guideline applicable to another of the counts.
(d)      When the offense level is determined largely on the basis of the total amount of harm or loss, the quantity of a substance involved, or some other measure of aggregate harm, or if the offense behavior is ongoing or continuous in nature and the offense guideline is written to cover such behavior.

And, §3D1.2 provides that

"Offenses covered by the following guidelines are to be grouped under this subsection:
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§§2B1.1, 2B1.4, 2B1.5, 2B4.1, 2B5.1, 2B5.3, 2B6.1;
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§§2T1.1, 2T1.4, 2T1.6, 2T1.7, 2T1.9, 2T2.1, 2T3.1.

That created the tension the Court needed to resolve.

The Court held that the two types of crimes were not closely related as required for grouping, that there were two groups and that the incremental adjustments of Part D could apply.  The Court held:

We note that the majority of circuits to address this issue have concluded that fraud counts and tax offense counts involving the proceeds of the fraud should not be group together under subsection (c) or (d) of § 3D1.2. See, e.g., United States v. Vucko, 473 F.3d 773, 779-80 (7th Cir. 2007) (addressing subsections (c) and (d)); United States v. Martin, 363 F.3d 25, 43-44 (1st Cir. 2004) (same); United States v. Shevi, 345 F.3d 675, 681 (8th Cir. 2003) (addressing only subsection (d)); United States v. Peterson, 312 F.3d 1300, 1304 (10th Cir. 2002) (addressing subsection (c)); Weinberger v. United States, 268 F.3d 346, 354-55 (6th Cir. 2001) (addressing subsections (c) and (d)); United States v. Lindsay, 184 F.3d 1138, 1142-43 (10th Cir. 1999) (addressing subsection (d)); United States v. Vitale, 159 F.3d 810, 815 (3rd Cir. 1998) (addressing subsection (c)); United States v. Seligsohn, 981 F.2d 1418, 1425-26 (3d Cir. 1992) (addressing subsection (d)). We agree with the majority of circuits.  n3
 n3 The only circuit to conclude that fraud counts and tax offense counts should be grouped under § 3D1.2(c) is the Fifth Circuit. See United States v. Haltom, 113 F.3d 43, 45-47 (5th Cir. 1997). Other circuits have roundly criticized Haltom. See, e.g., Vucko, 473 F.3d at 777; Martin, 363 F.3d at 43 n.31; Peterson, 312 F.3d at 1303; Weinberger, 268 F.3d at 354; Vitale, 159 F.3d at 815.
   The only circuit to conclude that fraud counts and tax offense counts should be grouped together under § 3D1.2(d) is the Second Circuit. See United States v. Fitzgerald, 232 F.3d 315, 318-21 (2d Cir. 2000). Two circuits, the Sixth and the Seventh, have declined to follow Fitzgerald. See Weinberger, 268 F.3d at 355 n.2; Vucko, 473 F.3d at 780. And, at least one Second Circuit judge has since suggested that Fitzgerald may be wrongly decided and has called on the Sentencing Commission to "cut through this morass and tell us in plain English whether it wants tax offenses grouped with the offenses that produced the income on which the taxes were evaded." See United States v. Gordon, 291 F.3d 181, 197-98 (2d Cir. 2002) (Newman, J, concurring).

As to subsection (c), Doxie's mail and wire fraud counts in Group 1 governed his offense level because they produced the highest offense level. See U.S.S.G. § 3D1.4 (explaining that the combined offense level is determined by taking the offense level for the group with the highest offense level and increasing it based on a table). Under § 2B1.1, the mail  and wire fraud counts do not have a specific-offense-characteristic increase based on the tax offense conduct. That is, under § 2B1.1, Doxie's offense level was not increased because Doxie failed to report his income obtained from the mail and wire fraud. See generally U.S.S.G. § 2B1.1. 

As Doxie points out, the guideline for tax offenses, U.S.S.G. § 2T1.1, imposes a two-level specific-offense-characteristic increase if the unreported income is from criminal activity. See U.S.S.G. § 2T1.1(b)(1) & cmt. n.4. But Doxie's offense level ultimately was not determined by § 2T1.1, but by § 2B1.1, so the specific offense characteristic increase in § 2T1.1(b)(1) did not increase his sentence. n4
   n4 We note that the two-level increase under § 2T1.1(b)(1) from level 18 to level 20 did not affect the number of Units used to calculate Doxie's combined offense level under § 3D1.4. See U.S.S.G. § 3D1.4(b) (counting as "one-half Unit any Group that is 5 to 8 levels less serious than the Group with the highest offense level"). Stated another way, if Doxie's tax offenses had not involved a failure to report income derived from criminal activity, his Group 2 offense level of 18 still would have resulted in one-half Unit under § 3D1.4(b) and his combined offense level would have remained 26 under § 3D1.4. This fact distinguishes Doxie's case from the defendant's in Haltom. See Haltom, 113 F.3d at 46-47 & n.5 (concluding that the defendant's mail fraud "counted twice toward his sentence" because "the enhanced tax evasion count was directly responsible for the ultimate 2-level increase" under § 3D1.4). 

In any event, the specific offense characteristic in § 2T1.1(b)(1) does not address fraud conduct in particular nor adjust depending on the seriousness of the underlying criminal activity. Instead, the two-level increase applies regardless of the type of criminal activity that resulted in unreported income. See U.S.S.G. § 2T1.1(b)(1) & cmt. n.4. The purpose of the two-level increase is not to account for the underlying criminal activity, but rather to adjust for the fact that "[c]riminally derived income is generally difficult to establish," making the tax loss "tend to be substantially understated." Id. § 2T1.1 cmt. background. Thus, Doxie's fraud counts are not "embodie[d]" by the conduct treated as a specific offense characteristic in § 2T1.1(b)(1), and grouping the tax and fraud counts separately does not result in double counting. Id. § 3D1.2(c) & cmt. n.5.n5
   n5 In 2001, the Sentencing Commission proposed an amendment to the official commentary to § 2T1.1 that would have called for grouping a tax evasion count with the count charging the offense that provided the income under § 3D1.2(c), but that proposed amendment was never promulgated. See Notice of Proposed Amendments to the Sentencing Guidelines, 66 Fed. Reg. 7962, 8004 (Jan. 26, 2001). Notably, the Sentencing Commission has managed to promulgate a similar amendment indicating that money laundering counts are to be grouped with the counts for an underlying offense that generated the laundered funds under § 3D1.2(c). See U.S.S.G. app. C, amend. 634; U.S.S.G. § 2S1.1 cmt. n.6. In light of this history, it appears "the Sentencing Commission does not support a categorical rule requiring courts to group fraud and tax evasion counts." Martin, 363 F.3d at 44 n.32. 

As for subsection (d) of § 3D1.2, although both guidelines—§ 2B1.1 and § 2T1.1—are included in the "to be grouped" list, they are not "of the same general type." The tax offenses are governed by the Internal Revenue Code in Title 26, rather than the criminal code in Part I of Title 18. Likewise, the offense level for the tax offenses are governed by a different part of the Sentencing Guidelines, Part T rather than Part B. Cf. Register, 678 F.3d at 1267 (concluding the defendant's failure-to-pay-over and filing false returns counts were "of the same general type" in part because they were both governed by the Internal Revenue Code and Part T of the Sentencing Guidelines). 

Further, the loss for the tax offenses is determined differently under the Guidelines. Specifically,§ 2T1.1 determines the base offense level based on tax losses, not on fraud losses. Also, to the extent § 2T1.1 accounts for fraud losses, it does so only as a two-level increase, so the fraud losses are not aggregated with the tax losses to set an offense level. See U.S.S.G. § 2T1.1(b)(1) (providing for a two-level increase "[i]f the defendant failed to report or to correctly identify the source of income exceeding $10,000 in any year from criminal activity"). 

Perhaps most important for both subsections (c) and (d) of § 3D1.2, Doxie's fraud and tax offenses are not "closely related" on the facts of this case. Doxie's tax crimes involved not just different victims, but distinct offense behavior. The circumstances of Doxie's wire and mail fraud—submitting false invoices and making fraudulent credit card charges at his work—are different in kind from his failure to report all of his income on his federal tax returns. Further, Doxie's fraud and tax crimes were not interrelated in a way that made them "integral cogs in continuing [a] scheme." Cf. United States v. Mullens, 65 F.3d 1560, 1564 (11th Cir. 1995) (explaining that the defendant's money laundering of the proceeds of the Ponzi scheme promoted the Ponzi scheme by "returning false profits to some investors and paying expenses to maintain the façade of success [which in turn] enabled [the defendant] to attract new investors and keep old investors from discovering his deceit"). In fact, the only connection between Doxie's unreported income and his fraud was that "the money represented the proceeds of the fraud," which by itself is insufficient for grouping under § 3D1.2. See McClendon, 195 F.3d at 602 (concluding that money laundering and fraud counts should not be grouped under § 3D1.2(d) merely because the laundered money was the proceeds of the fraud). n6
   n6 Had the district court grouped all 66 counts together in one group under either U.S.S.G. § 3D1.2(c) or (d) as Doxie urged, the adjusted offense level would have remained 25 under § 3D1.3(a) or (b). The only difference is there would have been no multi-count enhancement under § 3D1.4. The total offense level after the acceptance-of-responsibility reduction would have been 23. With a total offense level of 23 and a criminal history category of I, Doxie's advisory guidelines range would have been 46 to 57 months, instead of the 51 to 63 months used by the district court. 

Finally, any ambiguity as to whether to group Doxie's fraud and tax counts together under § 3D1.2(c) or (d) is resolved by reference to the Sentencing Guidelines' stated goals for grouping counts. Regardless of how Doxie's counts are grouped, his offense level ultimately is determined by his wire and mail fraud counts because they produce the highest adjusted offense level (25 as opposed to 20). See U.S.S.G. § 3D1.3(a)-(b). Because the Group 1 adjusted offense level of 25 did not include a specific-offense-characteristic increase for Doxie's tax counts, there was no double counting of Doxie's tax offense behavior when the district court applied the one-level increase under § 3D1.4 to determine the combined offense level. By imposing § 3D1.4's one-level increase for the four tax counts, the resulting advisory guidelines range furthered the goal of providing "incremental punishment for significant additional criminal conduct." See U.S.S.G. ch. 3, pt. D, introductory cmt. 

Had the district court done as Doxie urged and placed all 66 counts into one group, there would have been no additional punishment for Doxie's tax crimes reflected in the advisory guidelines range. In short, the only way to achieve the stated goals of providing incremental punishment for additional crimes while preventing double counting for substantially the same conduct is to refuse to group the tax counts with the wire and mail fraud counts. 

For these reasons, we conclude the district court did not err when it grouped Doxie's tax counts separately for purposes of calculating his offense level and advisory guidelines range. Accordingly, Doxie has not shown that his sentence is procedurally unreasonable.